TRENDING

Rules on outsourcing sometimes hinder the process

May 03, 1999

Once again, the federal government is wrestling with the who, what, when, how and whether of privatization. This has been a controversial topic at least since the 1966 inauguration of Office of Management and Budget Circular A-76, which sets out rules for competition between the public and private sectors. The circular helps define the type of work suitable for such competitionseverything except inherently governmental functions.

More recently, Congress enacted two significant laws on this topic. And officials at the highest levels of the executive branch, as part of the reinvention initiative, are asking whether some things done by the government would be done better if contracted out.

One of the statutes, 10 U.S. Code, Section 2462, requires the Defense Department to contract out nongovernmental functions that can be done more economically by the private sector. DOD is trying to balance this mandate with other provisions, such as the Arsenal Act, which requires DOD to keep certain core competencies in-house.

Whatever the decision, someone is disappointed. When contractors lose a competition with the government, they often cry foul, sometimes with justification. And federal workers are justifiably unhappy about the prospect of losing their jobs. Sometimes, government employees threatened with displacement by contractors resort to court action to keep their jobs. Circular A-76 grants them the right to appeal to a federal court.

Some opposition by federal workers is less overt, however. The General Accounting Office recently upheld protests by two would-be contractors in the case of DZS/Baker LLC (B-281224).

The Air Force invited proposals to perform maintenance at Wright-Patterson Air Force Base, Ohio. All proposals were rejected as unacceptable.

Two rejected bidders protested. It turned out that 14 of the 16 evaluators would have lost their jobs if the work had been contracted out. GAO, ruling this was a conflict of interest that could not be mitigated, upheld the protest. The Air Force objected in vain that it needed evaluators expertise and knowledge.

Expect this dilemma to recur as other work is considered for outsourcing. When those workers whose positions are at risk are kept off the evaluation team, the government may have to rely on others less qualified to judge proposals.

On the other hand, it is too much to expect dispassionate objectivity when the evaluators own job is at stake.

Another type of obstacle appeared in an Air Force procurement for civil engineering services at Eglin Air Force Base, Fla. The bulk of the work was subject to a fixed monthly price, regardless of the tasks ordered. The solicitation originally had nonbinding estimates, but even these were removed.

In the case, BMAR & Associates Inc. (B-281664), GAO upheld a protest claiming that the proposed contract included unreasonable risks. One important factor in this decision was that the governments bid for in-house performance did not have to include any contingency for work above the estimates. This put private-sector vendors at an unfair disadvantage.

The other statute is the Federal Activities Inventory Reform Act of 1998. The FAIR Act directs agencies to develop and publish inventories of activities suitable for contracting out.

OMB, which oversees these efforts, proposes to fold the FAIR process into its existing program under Circular A-76. Some in the private sector, however, are suspicious of the A-76 process, in part because of problems such as those in the protest decisions cited above. They want OMB to use the FAIR Act as a starting point for a bolder, more definitive program.

One continuing problem is how to treat the concept of best value in an outsourcing context. When best value is the criterion for award, the winner may not be the lowest-priced bidder. Yet when agencies compare private- and public-sector performance, bottom-line price is what matters.

It is logical to change the rules to include quality of performance in the comparison. Sometimes a small increase in cost is worth a large improvement in service. For the present, however, Section 2462 stands in the way of such a change at DOD.

Congress may not yet be through with legislating the rules for private-public competitions.

Joseph J. Petrillo is an attorney with the Washington law firm of Petrillo & Powell, PLLC. E-mail him at jpetrillo@counsel.com.